The China reflex: what next for Asia-Pacific trade?

A container port in Lianyungang, Jiangsu province. China, the largest trading nation in Asia, may look to lead regional trade if TPP collapses.Credit:
GENG YUHE / FOR CHINA DAILY

5 January 2017 • 7:00pm

Andrew Moody

With a newly elected US president pledging to dump the Trans-Pacific Partnership, Beijing’s next move has become a prime topic of debate.

Will China take advantage of Donald Trump’s decision in effect to scuttle Asia’s biggest-ever trade deal? The US president-elect announced on Nov 21 that on the first day of his presidency he would withdraw the United States from the Trans-Pacific Partnership (TPP).

Japanese Prime Minister Shinzo Abe, who had expended considerable political capital getting the deal passed against opposition from his own farmers, has said that in effect the TPP will be meaningless without the US.

The 11 other members, apart from the US, had almost all signed up because it offered a closer trade relationship with the world’s largest economy.

President Barack Obama had come close to turning the TPP, which covers 40 per cent of the global economy, into the physical embodiment of his “pivot to Asia” strategy, which critics say was designed to contain China’s power in the region.

After 10 years of effort, America is withdrawing from developing an economic zone that was largely in its own interestsKerry Brown, professor of Chinese studies and director of the Lau China Institute at King’s College

One important question is whether China will now move into the vacuum and try to build its own trade partnership with other Asian countries for which it is already, in most cases, the largest trade and investment partner.

This could mean breathing new life into RCEP, the Regional Comprehensive Economic Partnership, which was launched at the Association of Southeast Asian Nations summit in Cambodia in 2012. It is seen as a China-led grouping and one that also notably excludes the US.

There may also be an attempt finally to realise the Free Trade Area of the Asia Pacific, or FTAAP, the roadmap for which was put in place at the Asia Pacific Economic Co-operation forum in Beijing a little more than two years ago.

It is seen as more of a long-term initiative. With a more protectionist US as one of its potential members, it may lose momentum.

“It depends on how China deals with this. It is not an easy space to fill because it will have to propose its own free trade proposals, and that will be complicated. It can, however, now do this in a way it couldn’t do before the announcement was made.”

However, Prof Brown believes it is a spectacular “own goal” for the US.

“It means that after 10 years of effort, America is withdrawing from developing an economic zone that was largely in its own interests and would not have included China.”

End of the line: the TPP bus looks to have stalled for goodCredit:
SONG CHEN / CHINA DAILY

That the US would not stick with the TPP, which was signed by all its members, including the US, in February, was unsurprising. Even the Democratic presidential candidate, Hillary Clinton — who, when secretary of state had called it the “gold standard” of trade treaties — made a U-turn during her election campaign.

Hugh White, professor of strategic studies at the Australian National University and once a foreign policy adviser to the former Australian prime minister Bob Hawke, does not believe she would have changed her mind had she won the election.

“It is very unlikely she would have done that. She would have found it difficult to get it through Congress, given strong opposition on her own Democrat side as well as all the Republicans who would have denied her.”

Australia’s trade minister, Steven Ciobo, announced his backing of the RCEP approach within hours of the country’s Prime Minister, Malcolm Turnbull, speaking to Mr Trump following the US election, signaling the country had its sights set on the China-led grouping.

Prof White, author of The China Choice, which deals with the politics of the South China Sea region, said the whole episode looks like a retreat by the US.

“It is such a striking demonstration that America’s resolve to remain strong in Asia is not as strong as what everybody keeps saying it is,” he said.

He is also unclear whether China will now take up the mantle and create trade blocs that deliberately exclude the US, since that may not be in its ultimate interest.

“China wants to see the US as a full economic partner in Asia, but it wants itself to be the primary strategic power in the region. It may believe in the end that the economic relationship is more important than the strategic.”

The foreign policy expert Shi Yinhong, a professor of international relations and director of the Center on American Studies at Renmin University of China in Beijing, said he does not believe — even if there were a change of heart in Washington — that China and the US would be comfortable together in any new trading bloc.

“There would be a danger, from China’s point of view, of the US gradually gaining greater influence over the other members because it has a bigger economy and a high technological level,” Prof Shi said.

Stephen Roach, former chairman of Morgan Stanley Asia and author of Unbalanced: The Codependency of America and China, also thinks it unlikely that China will suddenly conjure a new body in the wake of Mr Trump’s decision.

“It is unrealistic to think that all of a sudden some new arrangement will be cobbled together to exclude a country like the US, which is in a political position to start raising objections to existing trade deals, let alone new ones,” Mr Roach said.

“China has got a whole load of other issues to deal with, not least managing its own domestic economy and its own relationships in the South China Sea, before it can assume a strong leadership role in the region.”

Any major trade agreement for the Asia-Pacific without China or the US can’t really be complete or workableWang Huiyao, President of the Centre for China and Globalisation

However, Mr Roach believes the pivot to Asia strategy, which was so much the central plank of Obama’s foreign policy, is in tatters.

“It was the crux of the pivot, and without TPP it would have exclusively been done on military terms, which would have created more tensions. I think the pivot without TPP now rings hollow.”

Many are concerned that with Britain’s decision to leave the European Union, and now with the election of Mr Trump on a distinctly protectionist agenda, the world is moving to a new era that has echoes of the 1930s.

Prof Shi of Renmin University insists there is no direct parallel.

“Then, Hitler was already in place, we had a militarist government in Japan, and the protectionism was much more severe than anything we are seeing today. I do think the current situation, however, is worse than at any time since the end of the Cold War, with nativism and nationalism prevailing almost everywhere in the world. We have all these strongmen saying they want to make our nations great again.”

Mr Roach, who is also a senior lecturer at the Yale School of Management, thinks trade deals are a difficult sell in a world consumed by populist election outcomes.

“The votes in the UK and now the US, and those coming up in Italy and France, are all a significant large piece of sand in the gears of liberalisation and globalisation,” he said.

He also cannot conceive that Mr Trump’s protectionist agenda will work in practice because the US and China are now completely dependent in each other:

“China depends on the US for its markets, and the exports to these markets are a key driver of the economic growth that produce such fabulous results for China. And the US needs China to provide low cost goods for income-constrained American consumers. We also need China’s surplus savings because we don’t save and it is hard to grow without saving.”

Wang Huiyao, president of the Centre for China and Globalisation, China’s largest independent think tank, insists that, in light of the impending withdrawal of the US from the TPP, trade treaties need to deal better with the complexities of globalisation.

Mr Wang said the deals now need to be more version 2.0 than 1.0.

“The old concept of free trade was to have no tariffs, and everything to be free within a group of countries. We now need to come up with something more complex than that, which maybe sets a few boundaries and adds some new rules.

“The US could enter into a treaty with China, for example, where there is a condition that China has to invest in manufacturing in the American rust belt, which would help Trump provide jobs there.”

Mr Wang sees the likely collapse of the TPP as an opportunity to reshape Asia-Pacific trade.

“There is more hope of this under Trump than with Hillary (Clinton). With her we would still be on 1.0. But now we can go on to 2.0.”

Mr Wang said one of the fault lines of the TPP was that it did not include China and was seen as being part of President Barack Obama’s pivot to Asia strategy, of which Clinton was a leading architect as secretary of state.

He believes there is an opportunity for a new trade agreement that includes both the United States and China.

“Why don’t they just do another trade deal and write the rules? Here is an opportunity for the clever politicians to demonstrate some capacity for leadership and get a new deal approved.

“China and the US are the two largest trading nations in the world, and they have one of the largest bilateral trading relationships as well. So any major trade agreement for the Asia-Pacific without China or the US can’t really be complete or workable.”

This article was originally produced and published by China Daily. View the original article at chinadaily.com.cn